Louisiana's combined rate is 8.85 percent, behind Arizona and Tennessee
Louisiana residents who get sticker shock when they look at the sales tax added to their purchases might have good reason, according to a report that ranks Louisiana's sales taxes the third-highest in the nation. The study, published Tuesday by the Washington-based Tax Foundation, ranks states based on a combination of their statewide sales tax rate and their average local sales tax rates. The local rates are weighted by population, according to the study.
A Tax Foundation report shows Louisiana has third-highest sales taxes in the country.Louisiana clocks in with a combined rate of 8.85 percent, just below the 9.12 percent rate in Arizona and the 9.45 percent rate in Tennessee, according to the Tax Foundation, a conservative group that advocates for lower and more broad-based taxes.
"It's significant, and not in a positive way," State Treasurer John Kennedy said. "When you're number three in the country in a category of taxes that states and local government rely on, that's not a good thing in my judgement."
Kennedy said Louisiana must rethink how it handles its tax programs, focusing on eliminating unnecessary corporate and personal income tax exemptions to allow lower rates on a broader swath of the population and prioritizing spending to cut money spent on consultants and earmarked projects.
"You want to have as broad as possible a base and as low a possible rate," said Kennedy, who called a state's tax system one of the most important factors in economic development.
The treasurer's concern about the tax rate was echoed by those on the other side of the political spectrum as well, though the proposed solution is a bit different.
Melissa Flournory, director of the liberal advocacy group Louisiana Progress, noted that sales taxes are among the most regressive kind of tax, and argued the report could provide a jumping-off point to "restart the conversation about tax equity." Part of that discussion should be the principals of the Stelly Plan, a now-abandoned constitutional amendment that sought to balance lower sales tax rates with higher income taxes, she said.
The brainchild of former Lake Charles lawmaker Vic Stelly, who was a Republican before dropping his party affiliation late in his career, the plan involved eliminating some state sales taxes on groceries and residential utilities and replacing the lost revenue with higher income taxes on middle-class and upper-class residents.
The proposal was approved by a referendum in 2002, and though the higher income taxes were rolled back five years later, the sales taxes were never reinstated. Officials have estimated that the lower combined tax rates costs the state about $600 million a year.
"With the roll-back of the Stelly Plan a couple years ago, I think that's one of the causes of the budget deficit we're facing now in Louisiana," Flournory said.
While Louisiana has one of the highest average sales tax rates, about half of that is due to city and parish taxes, and the statewide tax rate of 4 percent is among the lowest in the country. Only Colorado, with a 2.9 percent statewide rate, and Alaska, Delaware, Montana, New Hampshire and Oregon -- none of which impose a statewide sales tax -- have lower rates.
The sales tax is only part of the picture of the tax burden in Louisiana, said Don Nijoka, deputy director of the Louisiana Municipal Association. The study doesn't delve into property, income or businesses taxes, all of which are needed to paint a full picture of the tax rate in a state, he said.
Nijoka noted that local governments have few ways to raise revenue other than sales taxes. He also singled out exemptions as a serious problem in the state tax system, including the homestead exemption on owner-occupied properties, meaning governments must raise rates to raise enough revenue to provide services.
"We fight exemptions all the time," Nijoka said. "It's like coastal erosion; its going to add up to a whole lot, and you're going to lose a whole lot."
Jeff Adelson can be reached at jadelson@timespicayune.com or 225.342.5207.